Follow-Up on the 63-Page Credit Card Agreement

Several months ago, I took my own advice about how to choose a credit card and signed up for an American Express card from Costco. This is a business card and not a personal card. (I carry only one personal credit card.)

In early October, I complained that I wasn’t willing to activate the card until I had read and understood the enclosed agreement, which was the equivalent of 63 normal typewritten pages. Many readers have written to ask for a follow-up, but I haven’t been able to give one. I didn’t read the agreement until Christmas break.

It took me about an hour to work through the document. As far as I can tell — I’m only moderately proficient in that arcane language known as legalese — everything here is pretty standard except for one fee. Here’s the quote from the contract:

ATM Fee: We will impose a fee each time a Card is used to obtain cash or any other services from an ATM. This fee will be 3% of the amount of the cash withdrawn or other services obtained (including any additional fee imposed for use of the ATM by its operator), with a minimum of $5. This fee will be added to the Cash Advance balance.

Holy cats! A $5 minimum fee? I’ll never use that card in an ATM.

Fortunately, the other surprises in the contract were actually good. There’s a provision that says I’m not liable if I do business with a nearby company that tries to rip me off. The card automatically doubles warrantees (up to a year). It even includes some theft protection. These are things I wouldn’t have known if I hadn’t read the agreement.

I was satisfied with the contract, so I activated the card. But if I’d found anything that made me wary, I would have simply cut it up and then called the company to let them know I didn’t want the account. I admit that I shouldn’t have taken three months to do this, but the important thing is that it’s done.

Remember: nobody cares about your money more than you do. Always read any contract that you sign or agree to.

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Great advice. I think they make these things tough to read on purpose, to discourage you from reading them.

It’s doubly important to read mortgage documents, because they pressure you to sign everything quickly, yet you’re agreeing to something very long-term. I didn’t realize (because I didn’t read the documents closely enough) that our 2nd mortgage interest rate would double after six months, and of course no one bothered to mention it aloud at any stage of the process. Because it was in the fine print, I was “notified” – the burden was on me. Still regretting that one, but it was my own fault.

I hate the fine print. BTW, did you sign up for the Costco AMEX to get the $25 rebate? I signed up for the card as we shop at Costco about once a month. The thing that annoyed me is the rebate doesn’t come through for about three months!! I had to charge something on the card within a specific time period to be eligible for the rebate, and the payment came due long before the rebate. Actually, I’m still on my last month waiting for the rebate to come through. I guess I’ll just watch the card and see when I end up with $25 to my favor and then use the card.

It’s always a good idea to contact customer service and ask the representative, “are there any hidden fees or anything like that that I should be aware of?” “What information would be good for me to know about this card? “Are there things that other card holders have gotten into trouble about that I might be able to avoid?” I have received a wealth of candid, honest information this way, warning me upfront about this, that and the other. If you ask them directly, they have to disclose it, and they were surprisingly very forthcoming, with lots of detailed information and tips.

That $5 minimum cash advance fee is pretty much standard. As far as I can remember every card I have looked at contained the same structure of charging a % based on cash received, with a minimum amount regardless of advance. Some cards have even had higher minimum charges, and I can remember seeing $10 minimum charge. Basically, they guarantee interest on cash advances, while allowing the grace period for free “advances” when used in conjunction with an actual purchase. And just to clarify the “other than ATM” part for anyone who is unaware, that means running it through the bank for a cash advance. Most banks have a merchant machine which allows them to process advances (I guess for those who don’t like the ATM or can’t remember their pin)

Is that in addition to the typical cash advance fee? Most cards charge you a cash advance fee if you get money from an ATM or use a convenience check, and 3% is pretty common. Most cards also charge a higher interest rate for cash advances. All the info about rates and fees is usually listed on the back of the card application in a chart. Getting cash from a credit card is really expensive – it’s a good way to get poor quickly!

How funny you should post this; I didn’t get around to signing up for Schwab’s High Yield (no longer!) Investor Checking for at least six months because the online sign-up process included a 60-page PDF agreement plus three additional 5-10 page PDFs that I insisted on reading completely before I committed to it. It took about an hour or so on my end too.

All too often, we click “I accept the terms and conditions” without knowing what we’re getting ourselves into!

i have a new contract to read, because my credit card company was bought out recently. ugh, i hate reading all that. but i don’t want them to come back at me with any “gotchas” in the future. [sigh] so much to do!

JD, I think that is a typical charge for a cash advance, something you never want to do with a credit card. Not only do they charge you a ridiculous fee to get said cash, the interest rate is usually in the 18% range regardless of what your normal APR is.

As others have pointed out, 3%, $5 minimum for cash advance is totally standard, and some have a $10 minimum. And yes, if you need to use the card at an ATM, you are really in dire straits. One thing no one mentioned is that, unlike if you ever carry a balance, your cash-advance APR (18% or higher is typical) kicks in as soon as the transaction posts, which may be that same day. Also, this card probably has a clause that states that payments are applied to balances with lower APRs before higher ones, so that cash advance will sit there at its astronomical APR until everything is paid off.

Balance transfers often have the same structure (3%, $5 minimum) with a few differences: as mentioned in the previous blog entry, they can be at 0% for a time (often 12 months); fees are often capped (I’ve seen $75, $99 and $199), so you can borrow the money at a significantly lower effective APR; and sometimes transfer fees can be waived, either as part of the offer, of just by asking.

Especially if you can do a transfer with no fees, but even if there is only a fee cap, it can be profitable to engage in credit card arbitrage, borrowing the money from the company at, say, 1%, and putting it in a high-yield savings account at 3% and pocketing the 2% difference (of course, you need to pay the minimum each month and pay in full before they jack up the rate to regular rate).

However, in the current economic conditions with ING only paying 2.5% now, and other banks in the same ballpark (<4%), after taxes, it may be hard to show much profit.

Do people actually take cash advances from credit cards??? I have never heard of anyone ever actually doing this, nor can I think of a reason why you would need to. Aren’t cash advances something to avoid at all costs?? And why would you ever need to use this feature on a business related credit card???

If you’re so desperate for money that you would even contemplate a cash advance off of a credit card, why wouldn’t you just use the credit card itself in it’s usual fashion without facing any special fees??

The big deal with arbitration clauses is that arbiters are not provided by the government like judges are. In the absence of an arbitration clause, you can sue under the contract in a small claims court and pay a fairly small fee to get a binding judgment. But when the arbitration clause is there, you may have to split costs for the arbiter with the company you’re suing, and that often isn’t cheap.

Of course, with any big company, you can inflict a lot of pain on them even without suing — especially when you have a well-read blog.

Mary (#19) wrote: Do people actually take cash advances from credit cards???

Let me answer that question for you: Yes, they do. When I was just out of college, I took a several cash advances because I did not have a job. I also took a large one to put a down payment on a car. DUMB. But I didn’t know any better at the time.

I’ve also known people more recently who have taken cash advances to make mortgage payments. Not pretty.

If you’re so desperate for money that you would even contemplate a cash advance off of a credit card, why wouldn’t you just use the credit card itself in it’s usual fashion without facing any special fees??

Not everything can be paid by credit. In my case, I took a cash advance once to pay the bond on a new apartment, which had to be posted by cheque to the landlord.

Reading your agreements is a smart practice. My wife and I go round and round about this, because I insist on reading even before clicking the agree to terms boxes on websites, whereas she just clicks and moves on. Part of it is because I remember what it was like to be a lawsuit and reading all kinds of crazy contract cases.

Thank you for reading the contract! I’ve worked credit card customer service before and you have NO idea how many people would call and expect us to waive hundreds in fees, interest, and penalties and their excuse was simply “You don’t think anyone actually reads those contracts, do you?”

Another thing typical with cash advances is that the interest starts immediately. You don’t have the typical grace period that you get with all other purchases. You can take a cash advance on the 1st, and pay your bill on-time on the 30th, and still get hit with 30 days of interest for that cash advance.

One thing to be aware of if you have two people using the AMEX/Costco card: their bills have a bold, large text line that says TOTAL. This is a per person total. It’s different than the total balance which is in smaller letters at the top of the bill. A bit confusing the first time my wife and I both made charges on it.

In regards to people actually using credit card cash advances….I worked at a bank for a number of years. The 3 times that I had to do cash advances using the merchant machine as noted in another post above, all 3 times were people getting cash for posting bail for family members. One lady was sobbing in the lobby the entire time because her son was arrested for stealing a car and bail was $5000.

One time I used cash advance was when I wanted to give $2000 to my relatives in another country. I was visiting and didn’t want to carry that much cash. This was before ACH, and Western Union was expensive. At the time, most cash advances had no fee, at least on my card. Although the interest still started occuring right away. But I figured how to get around it.

What I did was a) send a check for $2000 to the bank that issued the card before I left the US. This resulted in $2000 credit on this card. b) when I was in this country I went to a bank, gave them my card and told that I want cash advance of $2000. No problem. By that time, my credit card issuer had received my check, so my cash advance brought the balance back to 0. No interest on $0….

No it doesn’t make much sense because ACH is so convenient, and most credit card charge for cash advances. But at the time, this turned out to be the cheapest way to transfer money. Other than to carry cash…

The Amex cards you get at Costco are great – I regularly get back about $250 per year in a certificate good at Costco, and I also upgraded to Executive Membership, which pays for itself and also gets me about $200 in rebates.

@becky

The Amex card offered by Costco is a credit card, not a charge card. It allows you to carry balances.

I have had nothing but good luck with Amex. Really, I’d pay almost anything they charge. When my wallet got stolen on vacation (Memorial Day weekend) and I had no credit cards and no cash, they sent a new card and $200 in cash to a quick-cash place – the next day, on a vacation day, and FREE. My Visa told me my new card would be there in 2 weeks, Maybe. Amex also lowered my rate (from when it was starting to be charged) when I called and pointed out I had good credit. (I get money back through them too, but really, that is incidental to the good service I get from them. Previous I’d never thought about which credit card to choose, but my experience with them has convinced me). Just sayin’…

In Response to #5, I’m discovering that Binding arbitration is a good thing. I have decided to cut all of my links to the CC Companies and stopped paying all of my credit card bills and turned everything over to a settlement service. All of my phone calls have now stopped and cards are being negotiated off at less than 50% of the balance and interest has been waived..I was sued by two debt collector/attorney’s offices who, of course, wanted to add in the cost of collection(Yikes!!). Howvever, because of the binding arbitation clause both firms decided to accept settlement offers of less than 1/2 of the balance and again all interest was waived and no attorney/collection fee’s. I don’t recormmend anyone doing this on their own however. If you get to the point I did and wake up and realize it’ll take you over 30 years at minimum payments to pay off the debe..then you should talk to a reputable settlement company for advise on how to do this.

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